BlackRock’s India bond ETF ‘One-Stop-Shop’ for foreigners

Mumbai: BlackRock is positioning its recently launched Indian government bond exchange-traded fund (ETF) as a “one-stop shop” for foreigners to deploy money in relatively high-yielding local sovereign debt, without navigating multiple layers they would otherwise confront to trade here, said an executive.

“On the bond side… the meat of the discussion is still about just the ease of access. The underlying bond market has traditionally been more challenging to access,” Hui Sien Koay, lead index, and fixed income strategist for APAC at BlackRock, told ET in an interview. “What the ETF suddenly opens up in terms of ease of access, convenience, cost-efficiencies (is) what we like to call democratising the access and do without the operational hazard for investors.”

Pointing out that global bond markets are still largely over-the-counter institutions, Koay said that for foreign investors looking to invest in Indian bonds, there are four layers at present – setting up a specific account to access bonds located here, determining the exchange rate considerations, procuring the bonds and posting margin considerations while looking at tax considerations.

“So, these four layers, although (they) have improved through the years, still exist, which is why the ETF should be a one-stop shop to democratise. I say getting easier because index inclusion is a pretty big testament that it has to be investable and liquid enough for them to enter mainstream benchmarks,” she said. “But, like I said, (there are) still four layers to plough through and if investors don’t want to have to bother, then an ETF is the perfect tool.”

In February, New York-based BlackRock launched an Indian government bond ETF, four months after JP Morgan included domestic bonds in its emerging market bond index. The ETF is an Irish-domiciled UCITS (undertaking for the collective investment in transferable securities) with investors across Europe, the Middle East, Africa and the Asia-Pacific, Koay said.She said that within the investment theme this year, India was “one of the biggest” given the country’s inclusion in global indices and that BlackRock had been conducting roadshows engaging across the client spectrum.”India is going to become 10% of the benchmark so you have to decide how to get there. The ETF can be a tool for them to easily access – the ETF can have tax efficient, optimised structures depending on what your fund or portfolio status is,” she said.In September 2023, JP Morgan said that India would be included in its GBI-EM Global index suite starting June 28 and that the country was expected to reach a maximum weight of 10%.

“If you’re an EM (emerging markets) manager, from a passive point of view, you have to get to that natural weight, but even if you’re an active manager without India in your benchmark, you are also looking… at 7.18% yield (for India), there are no other equivalent emerging markets that are yielding higher at the same credit rating,” Koay said.

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